IV. Present Position
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1954
In reporting on restrictions still in force by member countries, as required by Article XIV of the Fund Agreement, it can be said that the outstanding feature was a movement among the leading trading nations toward the removal of barriers and impediments to trade and payments. This movement, which gathered momentum during the period under survey, was encouraged by the greatly improved balance of payments positions of most of these countries and by the general stability in international trade and payments. In fact, it can be said that by the beginning of 1954 exchange and trade restrictions effectively applied by countries were probably less restrictive than in any year since the end of World War II.
Nevertheless, a large number of restrictive devices still remains in the hands of most member countries. Indeed a considerable number of countries continued, in 1953 and the early part of 1954, to apply restrictions with the same intensity as in the earlier years. While most countries enjoyed internal stability, a number of others were still trying to cope with economic and financial difficulties which had started in earlier years, particularly at the end of the Korean boom, and in these countries the predominant difficulty was that of inflation. The latter countries deployed familiar restrictive devices to try to safeguard their positions, and in some cases the application of these devices gave rise to new difficulties. The Fund urged these countries to stabilize their currencies, and it assisted some of them by providing technical assistance or direct financial assistance. Others had temporary balance of payments setbacks that showed signs of being overcome by the application of sound financial measures coupled, in certain cases, with Fund assistance.
World economic conditions were generally auspicious. Compared with preceding years, the period surveyed was one of relative stability and consolidation in international trade. The prices of internationally traded commodities fluctuated less than at other times since the end of World War II, and this indicated that the strains under which the international economy had been laboring were being relaxed. Coffee, cocoa, tea, and jute were notable among the products whose prices advanced, while rubber, sugar, wheat, tin, and rice showed price declines. (The price of tin has, however, recently risen appreciably.) Internal financial stabilization was maintained by most of the countries that had introduced appropriate measures in previous years. The inflationary pressures in various countries abated somewhat, particularly in Western Europe and Asia, and there was a gradual curtailment of administrative interference with the price mechanism. The relative stability of the international economy not only enabled most countries to maintain their internal cost and price structures in a satisfactory relationship with those of the rest of the world, but also facilitated the achievement of internal stability through internal adjustments or changes in exchange rates. The gold and dollar reserves of non-dollar countries increased in the aggregate by some $2½ billion. This increase in the monetary reserves of the non-dollar world and the improved balance of the international economy helped to create a setting propitious for reducing or eliminating restrictions imposed during the more difficult preceding years.
As the exchange reserves of many countries continued to increase, and as these countries found that the removal of certain restrictions did not impair their payments positions, the relaxation measures were extended to basic restrictions maintained since the war. The movement gathered momentum at the beginning of 1954. For example, as mentioned earlier, within a few weeks of each other, the United Kingdom considerably simplified the regulations applied to the sterling accounts of most non-dollar area countries and allowed the free movement of sterling between them, Germany allowed freer transfer of the deutsche mark accounts of nonresidents, and the Netherlands allowed greater freedom to outward capital movement. These measures together extended the facilities for multilateral trading and broadened the base for eventual convertibility.
Similarly, there has been a movement toward the reduction of discriminatory import restrictions. With the gradual restoration of competitive conditions in international trade, increasing pressure has developed for the reduction of discriminatory import restrictions. This is particularly true of countries that depend on imported raw materials and capital equipment for their export industries and have to compete in foreign markets with suppliers who are able to buy their raw materials and capital equipment at world prices.
There is another aspect of the process of liberalization which deserves consideration—the long-term character of some of the steps taken. It has been noted above that the elimination of certain restrictions was a necessary corollary to the return of trade to private hands, the reopening of traditional markets, and the authorization of more extensive forward trading. After years of disuse, the large trading centers of Europe are reviving once again, and freedom of access to all sources of supply is an essential factor for their proper functioning and continued operation. These markets would be quickly disrupted if restrictive import licenses or exchange permits were applied to trading in the commodities in which they deal. Other restrictions, which had remained in force for a considerable period, and which have now been removed, were closely linked with internal controls and restrictions, such as food rationing. Liberalization measures of this kind cannot easily be reversed.
The degree of restriction imposed by any country cannot be precisely measured, and no quantitative assessment is possible either of the relaxation of restrictions during the period under review or of the restrictions still being applied throughout the world. Moreover, most exchange regulations allow considerable administrative discretion, and restrictions may be more apparent than real; equally, administrative discretion permits the imposition of hidden restrictions. The general account of developments in the field of restrictions and the country surveys in the second part of this Report indicate that, during the period under survey, there was a very substantial removal of restrictions.
In considering further steps in the removal of restrictions and the establishment of convertibility, the attitude of many countries is necessarily being influenced by their judgments as to U.S. economic conditions. The fact that a number of countries have thus far been able to maintain satisfactory levels of exports to the United States despite the reduction in U.S. output and income are encouraging signs of the improved international positions of these countries.
The movement toward the removal of trade and payments barriers in 1953 and the first months of 1954 was not simply a short-term policy reflecting increased reserves and improved balance of payments. Governments have publicly committed themselves to a long-term policy of expanding trade and removing restrictions for the attainment of convertibility. Notable statements of this kind have been made by a number of governmental authorities in Western Europe and elsewhere. The communiqué of January 1954, following the meeting of Commonwealth Finance Ministers in Australia, stressed the “great strides” made in the Sterling Area and Commonwealth toward the objective of expanding trade and attaining convertibility. A surplus had been achieved in the Sterling Area’s balance of payments, reserves had increased, and sterling had gained strength. The communiqué drew attention to the progress made in the removal of restrictions by several Sterling Area countries.
In the same month the United States Commission on Foreign Economic Policy made recommendations within the framework of U.S. trade and tariff policy which, if implemented, would encourage and assist foreign countries in removing restrictions on trade and payments as rapidly as prudence permitted. The report stressed the importance of convertibility, but expressed the view that the removal of restrictions on trade and on payments should go hand in hand. Later, the President of the United States, in his message to Congress outlining the Administration’s foreign trade policy, supported these views and drew attention to the constructive steps affecting their own currencies that were being taken by European countries. The Committee of United States and Canadian Ministers also welcomed the desire in many countries to take decisive steps toward the restoration of a broad area of convertibility and stressed the willingness of their respective Governments to help in making such a movement successful. Public statements of this nature both in Europe and in North America have given a clear indication to the world that the leading trading nations are endeavoring to remove the impediments to trade and to lay the basis for currency convertibility.
Satisfying progress has thus been made both in the actual relaxation of exchange restrictions and in the attitude of public authorities toward the desirability of making further important progress. Provided these indications of changes in policies, coming from those who have been debtors and those who have been creditors, are implemented appropriately by both sides, the prospect of further definite progress is good. Certain countries are now contemplating further relaxations when the results of those already made are seen. Altogether, the conditions for convertibility and expansion of multilateral trade have been more progressively and actively prepared during the past year than at any time since the Fund was established.